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REG > I - Ethics, Professional Responsibilities, Federal Tax Procedures > Flashcards

I - Ethics, Professional Responsibilities, Federal Tax Procedures Flashcards

1
Q

Circular 230 SubPar A Section 103 provides that a certified public accountant who is not suspended or disbarred..

A

may practice by filing a written declaration that they’re qualified and is authorized to represent

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2
Q

Who may practice before the IRS?

A 
attorneys
cpa
enrolled agent
enrolled actuary
enrolled retirement plan agents (limited to employee plans)
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3
Q

Practicing before the IRS includes

A 
preparing documents
filing documents
corresponding w/irs 
written advice with regard to transactions that have potential for tax avoidance or evasion
representing client
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4
Q

what section for contingent fees

A

section 10.27

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5
Q

when can contingent fee be charged

A

IRS examination or challenge to original tax return or amended
claim for refund filed (only for interest and penalties)
when representing client in judicial proceedings

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6
Q

Circular 230 Subpart C Section 10.50

A

monetary penalty on practitioners. max penalty 100% gross income, can be added to the 50% penalty of gross income from Section 6694

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7
Q

Circular 230 Subpart C Section 10.51

A

acts of disreputable conduct - includes conviction of crimes, willfully evading taxes, being disbarred

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8
Q

Which section is understatement of taxpayer liability

A

Section 6694

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9
Q

Section 6694 (a) punishes understatement for:

A

unreasonable position = if no substantial authority = <40% chance of being challenged
penalty is greater of 1k or 50% income

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10
Q

Section 6694(b) punishes understatement for:

A

willful or reckless understatement.

Penalty is greater of 5K or 75% income

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11
Q

which section abuses TRPs for abusive tax shelters

A

Section 6700.

Punish if promote, organize or participate in, engage in gross overvaluation (2x)

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12
Q

3 unreasonable positions

A

no substantial authority (40%) for position
no reasonable basis (20%) for disclosed position
no more likely than not (50%) for tax shelter

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13
Q

What is the penalty for fraudulent understatement

A

75% of understatement

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14
Q

a substantial understatement on an individual return =

A

greater of 10% of the tax or 5k

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15
Q

a substantial understatement for a c corp

A

lesser of 10% of tax, 10k, or 10M

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16
Q

Form used to disclose a tax position

A

form 8275 or 8275-R

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17
Q

a plaintiff must prove the following elements in order to win a breach of contract suit:

A

1 - existence of an enforceable contract (oral contract usually ok)
2 - plaintiff client complied with contracted obligations
3 - defendant accountant breached the contract (may be intentional)
4 - damages were caused by the breach

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18
Q

burden of proof needed for most civil cases

A

preponderance of evidence (more likely true tan not true > 50%)

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19
Q

statute of limitations for breach of contract

A 
oral = 2 years
written = 4 years from breach
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20
Q

3 defenses to breach of contract claims

A

statue of limitations, justifiable breach, substantial performance

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21
Q

4 elements of a cause of action for professional negligence

A

1 - accountant owed a duty of care to the plaintiff
2- defendant breached the standard of care
3 - breach proximately caused injury
4 - client suffered damages

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22
Q

how does a breach proximately cause an injury?

A

2 parts: factual and legal

“but for” the accountant’s breach, loss would not have occured. and if injury was reasonably foree result of breach

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23
Q

the main difference between negligent misrepresentation claim and negligence claim:

A

plaintiff relied on the information

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24
Q

basic elements of fraud claim

A

1 - misrepresentation or omission of fact (includes false statement of expert opinion)
2 - materiality
3 - accountant knew or recklessly endangered the falsity (scienter)
4 - there was reasonable reliance
5 - damages

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25
Q

other word for knew or recklessly disregarded the falsity

A

scienter = knowledge = actual fraud

reckless disregard or gross negligence = constructive fraud

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26
Q

if fraud, can you have both types of damages?

A

yes both compensatory and punitive damages

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27
Q

is the burden of proof higher for fraud cases?

A

need to prove with clear and convincing evidence (substantially more probable than more true than not)

28
Q

statute of limitations for fraud

A

4 years of when they were defrauded or when they discovered the fraud

29
Q

can incidental beneficiaries sue for breach of contract?

A

no

30
Q

describe the elements of recovery

A

duty, breach, damages, proximate cause

31
Q

the 3 primary approaches to accountant liability

A

the privity approach of ultramares vs touche, restatement limited class approach, reasonable foreseeability approach

32
Q

what is the privity approach of ultramares vs touche

A

accountant is liable only to those with whom they had privity of contract

33
Q

restatement “limited class” approach to accountant liability

A

accountant has third party liability to a limited class of known or intended users of financial statements whose specific ID don’t need to be known by the CPA

34
Q

True or false: a cpa can be held liable for actual fraud only

A

false

35
Q

true or false: a cpa who commits fraud is liable to all plaintiffs whom the CPA could reasonably foresee would be injured by the fraud

A

true

36
Q

CPA recklessly disregarded the tax law when giving advice. true or false: this is an example of actual fraud

A

false

37
Q

do the federal or state courts typically recognize accountant-client testimonial privilege?

A

no. however, in 15 states some recognize privilege that belongs to the client, which can be waived. only applies in those state courts

38
Q

what section of the IRC extends modest testimonial privilege to clients of tax advisers?

A

section 7525

39
Q

which section of the IRC provides criminal penalties for unauthorzed disclosures of taxpayer info?

A

section 7216

40
Q

which section of IRC imposes civil fines for disclosure of taxpayer info?

A

section 6713

41
Q

what is the custom of profession standard

A

despite a cpa’s adherence to the custom of the profession, negligence may still be present

42
Q

the third party (primary) beneficiary rule is relevant only in which cases: fraud vs constructive fraud vs neglignence

A

only negligence

43
Q

sources of contract law

A

common law and article 2 of UCC (uniform commercial code - sales)

44
Q

which requires more details and precision: common law or UCC article 2?

A

common law. ucc has more flexibility

45
Q

what does ucc article 2 apply to?

A

contracts that involve sale of goods. can also include providing both goods and services, if primarily for sale of goods. if primarily for installation, that would be common law

46
Q

what does contract law apply to?

A

service and real estate contracts

47
Q

what are growing crops governed by, UCC or common law?

A

UCC

48
Q

what is a void contract

A

lacks legal purpose or is in violation of the law - cannot be enforced by the courts

49
Q

requirements of a valid offer

A

present intent
definite terms
communication of offer

50
Q

open price term

A

a reasonable or market time price at the time of delivery will apply

51
Q

open payment term

A

payment is due at time and place buyer is to receive the goods

52
Q

open quantity

A

quantity is to be set by output or need. need good faith and past measurements

53
Q

open place of delivery

A

delivery is at seller’s business or residence

54
Q

open time for contracted performance

A

reasonable time

55
Q

what are definite terms for common law vs for UCC?

A

common law requires ID of parties, subject mater, price, time for performance. UCC is more relaxed

56
Q

what is the common law rule for language of acceptance

A

mirror image rule: acceptance must be absolute, unequivocal, unconditional, or treated as a counteroffer, not an acceptance.

57
Q

what is the UCC rule for language of acceptance

A

definite expression of acceptance. if followed by additional terms, might form a contract.

58
Q

is conditional acceptance ever acceptance?

A

no, for both UCC and common law

59
Q

when is acceptance effective?

A

if sent by an authorized medium, contract is formed when offeree delivers acceptance to authorized medium (even if it is never received by offeror)

60
Q

the 3 types of irrevocable offers

A

options
sales of goods firm offers
offers irrevocable by estoppel

61
Q

is a firm offer by a merchant offeror in the sale of goods under the UCC irrevocable even though no consideration is received?

A

yes

62
Q

true or false: if you accept in writing the written offer “we offer to sell you our boat” this is an enforceable contract under UCC

A

true

63
Q

When is there no Section 6662 penalty imposed?

A

If there was reasonable cause for underpayment and taxpayer acted with good faith

64
Q

Reasonable Cause

A

exercise of ordinary care, judged objectively

65
Q

reasonable cause standards of belief

A

substantial authority >= 40%

reasonable basis >= 20% sustained

66
Q

does good faith include reliance on tax advisor?

A

yes. need:
advisor was given all facts and circumstance
advice was not based on unreasonable assumptions

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